February 21, 2013

Why to Patent

Yesterday, I posted about the fact that a feature for a robot I’m designing is now patent pending. I realize the open source community doesn’t like patents, while I’m not actively hostile to them. I’ll never be able to change the minds of those who believe that patents are evil — but I do want to point out how they’re good.

Patents are, by their very nature, a mixed bag. They do slow down innovation — of that, there’s no doubt. But at the same time, they level the playing field and allow small inventors the ability to enter a fight with bigger dogs, and encourage individuals to invent. Here’s my general thoughts on this:

1. Patents give you, as an inventor, better responses. Let’s say you’ve got an idea, and want to make it into a product, or even, collaborate with others to make it. Without patents, you go out and start talking to people about your idea — some of them more capitalized than you. In fact, some of those people may be part of larger entities, like a corporation, even a large multi-national one. They either didn’t have the idea, or worse yet, did have the idea at some point in the past, but never did anything with it and likely never will. So, you go and describe your idea, and that description provides the political will inside the corporation to make what you described to them. Guess what — without the patent, you’re SOL. I’ve worked at large multi-national corporations. I’ve watched this happen. I know for fact that this scenario does happen, exactly like this. But when that small inventor has a patent, the large company thinks twice. They know they’ll have to bury the patent — but that means larger costs. It’s often a cheaper business decision to license the idea, and the inventor gets some of it.

2. Patents give you more time. If you have an idea that no-one else has ever made, and you start working on it, a bigger entity than you can come on the scene with the same idea, due to synchronicity. In this case, both parties have independently come up with the idea, at nearly the same, but slightly different, times. In a no-patent world, the smaller guy, or the guy in a first-world country, is at a huge disadvantage. With patents, the smaller guy can respond to the bigger guy and collaborate, and still contribute. In many cases, the larger rival is bluffing — they’re far away from realization, and the smaller, faster guy, will lose, since there’s now a rush to market. Patents let the small guy develop at a natural pace.

3. Patents give you a chance to compete against third-world labor. If you want to make something in a first-world country, patents are it. There’s no way an inventor can invent at the costs of first-world supplies what could be done in the third world. An usually, it’s far easier to copy something than design it from scratch.

4. Patents allow you to have the relationships you want. This is the toughest one to explain, but patents let you collaborate with many more people than you can without patents. I’m not talking about point 1 — that’s a response to a violation of a relationship. No, I mean with patent protections on your IP, you can seek out relationships that you couldn’t without them. Investors, licenses, are examples of these relationships. Customers are another — with patents, your customers stay customers, not competitors. Your suppliers stay suppliers. Publications remain publications. Without patents, everyone is a potential conflict.

There’s a lot more reasons for patents — but in the end, they’re another tool in the chest. We, as a nation, believe they do more harm than good — that’s why we honor them today. While in the past, we haven’t. Patents provide both good and bad, and the trick is balancing the goods against the bads. All the open-source things I’ve seen are implementations of patented ideas. The open-source guys get there, eventually, but never first. Very rarely, second. Usually, third or fourth, at best, as some grad student or professor reverse engineers something — and even then patents it when possible ( since patents count as publications for tenure — think Google’s patent ).

Nuclear patent exchanges with large firms are rare — remember, it doesn’t cost much to get to deposition and summary judgement stage, and once there, even hardened CEOs know the value of settlement. Nuclear exchanges occur only when someone is pissed off and acting irrationally — not impossible, but relatively rare outcomes. In law school, I learned something like 95% of cases settle after summary judgement — even patent ones. Large firms think a little different — they don’t want to stop or license — the way they save face is to buy a holding firm or to enter a joint venture. When you see a multi-million dollar M&A of a stupidly small holding firm not aligned with any product interest — that likely was a patent battle.

I was explaining probability and perception — you don’t need $3 million to defend a patent — a small amount + knowledge of your adversary’s interests are enough. Actually going Nuclear and getting into a full-on court battle is rare. The perception that you need a lot of money to defend a patent isn’t correct — it’s just that patent fights don’t look like them on the outside. M&A of small firms by large firms with large goodwill payments — that’s what a normal patent fight between a large firm and a single person looks like. The process is simple — the single person forms a one-man holding firm, then starts a defense suit. The single person can expect a buy-out offer at the end of summary judgement, and they take it if he or she wants. If he or she feels a better settlement is possible, then he or she can recruit investors into the holding firm to fight for the bigger settlement — easy to do once you have the first Settlement offers in hand. Settlement offers keep coming along the way, and eventually, settlement agreement happens when the offer hits what the single person wanted. This is exactly Eolas, and is the normal way for David to fight Goliath.

Most people don’t see how real David v Goliath patent battles work out, and so assume that Goliath v. Goliath battles are the norm, and a single developer is dead when facing Goliath in a patent Battle. Without the patent, the single developer is dead — there is no way to defend his or her economic interests. With a patent, there is a way. Most of the time, without large cash outlays.